Hint: This is the riskiest, most costly phase in and business timeline. You could be a few scrappy engineers trying to build a new company from a napkin pitch or a polished and professional big company team trying to develop and bolt on a new business unit…

Scaling… This is where you turn a more developed idea into something for the masses. You go from a handful of test customers to thousands, hundreds of thousand, or millions of users.

Will the new business idea actually survive in the marketplace? And by survive I mean one thing; Make Money. Will it generate more revenues than it costs to keep the new business or business unit operating?

In a start up the scrappy team will do what is needed to verify they have a concept really ready to scale and if it fails they can pivot to something a little different. Maybe in the worst case the startup company flounders and disappears. Most startup teams can walk away from failure intact and will probably start something new pretty quick. They learn from the failure and come back with an immense amount of valuable and practical experience. And hopeful will not make the same mistakes again.

But in a big company on the hunt for new innovation and growth opportunities a scaling phase disaster can cost someone their cushy corporate job including all the perks and essentials like family health insurance, generous retirement plan, and use of the corporate jet. The stakes are much higher for a big company team because as we all know it is more painful to lose something you already have than to gain something new. How many startup teams have a salary and perks buffet like someone working for a big company?

So the first thing big companies can learn from Startups about scaling is to take the stigma out of potential failure.

When a big company innovation team thinks they could be fired for stumbling there will be two big problems: (1) No one will want to innovate for fear of career damage and/or, (2) Those big company employees that step up to try to take the risks to innovate within the big organization may not be the best qualified to actually get the job done.

Instead, CEOs and other big company leaders need to create a “reward for risk taking” environment (culture) where innovators are celebrated no matter how things work out. Win or lose the big company risk takers need to be protected within the company. Eventually those risks could pay off. Most big companies started with someone who took a big risk.

I’m not saying failure should be the objective but failure should be tolerated or even celebrated as long as the team did everything in their power to assure a successful scale-up.

What can an innovation team actually do to de-risk an innovation scaleup?

Let’s face it, if your innovation is just going to stay in your garage, lab, coworking space, or head it will be pretty worthless. You can only see revenues and profits if the idea is scaled in the market.

And even worse, if you spend your time or big company resources continuously fine-tuning the innovation idea to perfection you just might be working with something that could never scale. And while you take the time to endlessly fine-tune the innovation, your market may pass you by.

I have a full Scaling Checklist with all the items essential to tell you when an idea is ready to scale, You can find it here on my Scaling Cheatsheet.

The checklist has ten essential items you need to get right, but let me focus on the most important item you need to check off before scaling:

Assumptions -> Testing -> Proof

When you develop your innovative new product or service there are key assumptions that you make. For example, if you were on the Uber innovation team a key assumption was that people would use a smartphone app to summon a vehicle for their transportation needs. Remember, before Uber we would just walk to the corner and hail a taxi or phone our favorite Limo company to arrange for a ride. Would people actually use their smartphones to arrange a ride with a stranger?

What are the key assumptions that must be true for your new product or service to actually gain a larger audience?

Once you list those critical key assumptions you need to test them. I am not talking about some big, expensive, time consuming survey at this point. Big companies can learn from lean startups on how to quickly and cheaply test key assumptions. Mock up a prototype user interface on paper and see how ten people respond to the design. Go to your big company lunch room and do a one-question survey. For example… If you were traveling to a city you never visited before would you consider staying in a unique apartment with lots of space and a great view and a complete kitchen instead of a crowded, busy, hotel at twice the price?

You guessed it… That’s a key assumption behind VRBO and AIRBNB.

List your key assumptions, test them, and prove your new product or service might really have people that would pay for it. Quick and dirty tests like these can save you much grief later. If your key assumptions don’t test out it’s time to go back to the drawing board and pivot or scrap the idea.

If big company innovation teams really think like fast-moving risk-taking flexible startups and upper management provides a supportive environment who knows what could happen?

I know the stock market is going crazy these days and churning up a lot of stomach acid, but It’s a fact of life that stock prices will always go up and down. The only sure thing is to keep your eye on the actual company performance and invest in the real winners.

This recent New York Time story that talks about the “absorption” of Xerox by Fujifilm Holdings of Japan is significant. The news is not exactly earth shaking since we have all seen the business use of paper documents collapse over the last 20 years. Xerox was a paper moving business that could nit leave the paper world behind and really innovate.

The introduction of reasonably prices fax machines in the 1980s and the subsequent integration of electronic fax modems into desktop computers back in the early 1990s should have been a strong warning to Xerox that paper documents could be on the way to extinction.

But the introduction and wide use of Business eMail and electronic documents with the help of software like Adobe Acrobat, first released on June 15, 1993 should have really sent a message to Xerox. Now you can even sign and return legal documents without printing them. The days of multi-acre office spaces stacked with files cabinets full of paper documents, and the need for multiple copies, is long gone.

But enough with the ancient history lesson… What does this Xerox collapse mean for technology companies today and for your next startup?

No More File Cabinets Required

It all comes down to one huge problem for large companies…

The bigger they get the harder it is to really innovate. Probably every Fortune 1,000 CEO has this rule on a piece of paper tucked into his (or her) wallet.

How could this big company innovation roadblock rule actually be true?

The fact of the matter is these big companies are designed to deliver product (maybe even a service) for the lowest possible cost. There is a specific skill set involved to design, control, and execute low cost/high reliability product delivery systems. It is very different from the skill set needed for relentless pursuit of the next big (or even small) thing and the open minded discovery that leads to company transforming innovation.

The main problem is that the end-to-end innovation process has three guaranteed components:

It will be extremely risky – Like new business startups there are so many unknowns and uncontrollable variables that these type of projects within big companies are at the extreme high end of the risk curve. No one in a big company wants to spend a few years dealing with hundreds of unknowns. It can be bad for their annual bonus.

There is a high probability of failure – Most innovation projects will fail. And failure is no way to advance in a big company. And… It’s can be bad for your annual bonus.

It will take time to build an innovation into a real business – These kind of innovative products (or services) may not see their first dollar of revenue for over a year. And because of bloated big company organization structures, procedures, and approval processes profitability may be several business cycles away in a world of quarter-to-quarter profit reports. Definitely not good for your annual bonus.

The Xerox Computer That Inspired The Macintosh

Are you seeing a theme here?

Hint: How can a big companies innovate if no one in the organization structure is ready to put their bonus or even actual job on the line?

The simple answer is that they can’t really innovate. It does happen form time-to-time but it definitely is not that often.

So in a world where companies are faced with the innovate or die choice every year what can they do?

They usually wait for some smart startup to take all the risk then buy the startup.

A great example is a recent story that talks about how Walmart’s Store No 8 Incubator is acquiring Spatialand, a company that builds Virtual Reality (VR) products for retail stores and websites. Sounds like a whole new way to shop and a possible Amazon killer. Any edge against Amazon is a must-have for WalMart.

Why should Walmart take the immense risk, and put some executives bonu’s in jeopardy so they can develop cutting edge advanced shopping technology when they can wait for some smart startup team to take all the risk and deliver something they can just pick off a shelf and call their own.

The Guy Who Took The Risk And Turned That Xerox Technology Into Apple Computer

Walmart is a company that is really good at sourcing packaged goods and other consumer products in mass quantities from independent manufacturers all over the world and putting it on their multitude of store shelves then keeping the product restocked. This does not resemble in any way the skills needed to design, develop, manage, and deploy a high-tech VR shopping experience. If Walmart tried this they would fail. And spend a lot of money and time doing it.

Now all we need is a way for risk averse process-capable big companies to work with risk hungry technically-proficient startup companies to a keep steady stream of innovations flowing to the big companies.

I have some ideas on how this could actually work and benefit both large companies and startups, but I will save it for a future article.

Facebook, Google, Netflix, and Amazon are all going strong right now but one thing is for sure… No disruptor has lasted forever. Just as these leaders crushed their predecessors, new innovative companies will come along and crush them at some point. Maybe sooner than you think…

Why not you?

When you look at the crop of companies that keep jumping into current startup accelerators you might think all the great ideas have been tried already.

It’s just seems like the same old ideas are being recycled over and over again. And when something fresh pops up it usually addresses a market that is too small to actually create a significant business. A billion-dollar business. And… That’s one key trait of a true disrupter.

First let’s agree that a successful startup, a real disrupter, as a minimum needs three things beside the elusive great idea…

A dedicated team – The founders need to be extremely competent, fearless, and ready to give 110%.

A clear “Distribution” plan – How the product or service will attract paying customers and deliver the product or service.

A defendable moat – Once competitors (known and unknown) see what you are doing what will keep them from going after the same market the same way and putting you out of business?

Without any one of these three essential components a startup is only relying on luck to succeed. And luck is not a solid business strategy.

Could empty seats be the real problem?

The thing I have seen with current business accelerators is they have a certain number of seats to fill. There may be twenty, fifty, or a hundred. And no matter how good the current crop of startup teams might be they will fill all those seats.

Maybe this is the reason why Accelerators seem to be faltering when it comes to creating the next round of truly disruptive companies. An emphasis on the number of startups and filling seats could be distracting accelerator managers from focusing in on the few companies that can really rise above the others.

This numbers game worked well five or ten years ago when disruption was easier but today there is so much background noise in the acceleration game that good teams and ideas may be getting lost.

Is a new Accelerator model needed?

In the world of innovation, it’s a safe bet that if you are doing business today the same way you did business last year then you are probably falling behind. Accelerators are caught in this trap. If the innovator gate keepers don’t innovate who will?

Instead of moving big numbers of startups through the acceleration process and hoping a few will get to the next round of funding and see some growth, why not focus on just a few startups?

This is probably a scary concept for accelerator operators because it puts the responsibility on them to pick winners. It’s a lot more difficult to select the five best accelerator candidates than to select fifty. But the key to this strategy is that ten times the resources, cash, time, and expertise can be dedicated to fewer companies. Vastly raising the probability of success.

Yes, this will leave many startup companies without a seat in an accelerator but I will talk a little more about how this could be mitigated later in this article.

So, if accelerators of the future only work with a limited number of companies how can they raise the probability that those fewer bets will result in wins?

If the following criterion is used companies that do get into accelerators should have a higher success rate:

Distribution Focused – The company has a clear way to attract customers, deliver their product/service, and make a profit.

Clear Objective – What does a win look like for the startup? Is a win about securing the next round of financing and foisting the startup onto another treadmill or about helping the company actually delivering a product/service that can be profitable?

All three of these selection criteria must be met to get into the accelerator of the future. If a company comes close it’s just not good enough and the founders should work to build up the weak areas or move on to another idea.

So… What would the future of accelerators be like if operators had five companies instead of fifty?

This more focused accelerator model would be interesting to see in action. But it won’t happen until accelerator managers and funders figure it out that enough is enough. The failure rate is just too high.

What about the forty-five companies that don’t make it into the accelerator of the future?

A better way to pre-accelerate startups should help that forty-five companies bridge the gap to get into the accelerator’s next round or move on to a better idea. This is the way baseball’s farm teams work to develop talent for the major leagues. This could be a way to get to the next disruptors even faster…

If you think it might be in the area of Artificial Intelligence, big data, or the Internet of Things you just might be wrong…
How do I know this?

Because right now in some garage, basement, or super cool co-working space there’s at least one person with the idea, the team, and the energy to build the next billion dollar company.

And when that happens, we will all be surprised because it won’t be what is expected. It never is… Did we really expect Uber, AirBnB, or DropBox?

But no matter how great the idea, how experienced the team, or how much money can be raised, it all comes down to how you Start, Run and Exit the company. If you can’t Start, Run and Exit smoothly you will never make it to the Billion dollar mark. If fact, you may not even make it to the one dollar – of profit – mark.

What would you say if I told you it all comes down to one simple concept? One thing you need to know.

This is that concept… Find your fatal flaw and fix it.

Or more accurately, find your fatal flaws and fix them.

NOTE: Most everything in this article relates to business units in larger companies not just startups.

Back in the late 1970s I started out as a structural engineer. The thing we were always obsessed with was finding and fixing fatal flaws in designs of buildings, bridges, dams or any structure. If we missed potential structural fatal flaws, bad things could happen. People could get hurt.

But what is the definition of a fatal flaw for a startup or a business unit within a larger organization?

1. It is business killing or crippling.
Enough said… A fatal flaw can end your business. Missed payroll, angry investors, lights out.

2. Usually something you just don’t want to face right now.
It’s so easy to just go day-to-day without really looking close at what is really keeping your business from being everything you want it to be. Many people think they can wait until tomorrow to deal with real problems then… (See number 1 above)

3. Sometimes everyone else sees it but you don’t.
You are so close to your business and its every-day routine struggles and challenges that you just don’t see the real root of your problems. The one thing that might be keeping you back.

4. Makes your business “uninvestible”. Radioactive to Investors.
Investors are generally smart people. Expect them to look very close at your company. It’s better if you find your Fatal Flaw before they do. If you are having a hard time raising money this may be your real problem.

5. The right questions, thoughtfully answered, can identify a fatal flaw.
You can use the right series of question to help identify your potential fatal flaws. But you need to consider each question carefully and answer them truthfully. The truth can sometimes be an eye opener. And not in a good way. See the list of fatal flaw identifying questions in the next section.

6. And… Once you fix it, another one will emerge.
Just because you found a fatal flaw and fixed it does not mean you are done. Many times another fatal will emerge.

What are the questions that can help identify a fatal flaw in your business? Read on for all the critical questions you need to ask yourself. You can CLICK HERE for a handy cheatsheet with all the questions and a few surprises.

I will split the fatal flaw identifying questions into the three business phases, Start, Run, and Exit…

Start Phase FATAL FLAW Identification Questions:

1. Does the team have a clear leader? Without a clear leader the team will tend to drift. Collaboration only works up to a point then someone has to make the hard decisions and lead the team.

2. Does the team work well together? What is the history? Did the team just meet a few weeks ago in some co-working space or have they been friends and teammates for many years. A team full of people who have just met may be headed for trouble at the first sign of disagreement or distress.

3. Is the Mentor matched to the prospective business? The most important person on the startup team will be mentor. This key person will guide the company when setting priorities and making many critical decisions. It is important that the mentor have a skill set and experience related to the needs of the company. It’s no use having an agriculture specialist helping your dating ap startup.

4. Does the pitch excite, interest, and motivate people? You will use your five to fifteen word pitch to quickly tell people what your company does. If you don’t see their eyes widen and hear noticeable excitement in their voices then your pitch is not working. You will use your pitch to attract team members and investors. If you are having a hard time with either or both of these groups then it is probably your pitch.

5. Is the team ready to pivot when needed? Startups seldom end up where they started. Along the way there will be many pivots as the business is fine-tuned to match market requirements. If the team is not ready to pivot they may be creating a business that does not have any potential customers.

6. Does the prospective business have a clear moat? What is your competitive advantage? What will keep others from moving into your market space? If somebody can just hear your excellently crafted pitch, then contract with some technology outsourcing company to create a similar product that goes after the same market, then you have a problem. Moats can be locked in customers, proprietary technology, patents, trademarks, or a unique and large user base.

7. Does the business have a reasonable break-even point? It’s never too early to fire up a spreadsheet and determine if your business can make money. How many customers do you actually need to eliminate your cash burn? How much will they pay for your product/service? What are your expected costs? Get it all into a spreadsheet sooner instead of later.

8. Does the business have a clear distribution strategy? I am defining “distribution” here as (1) the way you attract customers, (2) the way you deliver your product/service to them, then (3) how you extract payment. So many times people create great technology that may fit a market need but there is no way to actually attract enough potential paying customers at a reasonable costs so the company can be profitable. If you are spending ten dollars to attract a customer that is eventually worth two dollars to the company you are not going to make it back on the volume. It is essential that you have a clear distribution plan.

9. Are you really a Wantrepreneur? A Wantreprenuer is someone who wants to be and entrepreneur but is not ready to totally devote their selves to the effort. They are more attracted to the concept of entrepreneurship than the long hours, sacrifices, and huge personal risks involved. A Wantrepreneur is not necessarily a bad thing. Many Wantreprenuers can succeed at some level but they will never run a billion-dollar business. They will be lucky if they can hit cash flow positive and employ five people. Wantreprenuers need to scale back their expectations or they will hit an endless series of curious and painful setbacks. Wantreprenuers should forget about attracting investors, highly qualified team members, or a significant market position. Wantrepreneurs should not be surprised if they discover a new market and a more dedicated Entrepreneur puts in the time, makes the sacrifices, and takes the huge personal risk to truly exploits that market to create the billion dollar business.

Once your company is up and running for a few months it’s time to consider the…

RUN Phase FATAL FLAW Identification Question:

1. Has the team listened to customers and created a needed product? Meeting customer needs is what your business should be all about. If you aren’t meeting and exceeding your customer’s requirements your days are numbered.

2. Do you have five (or less) measurable goals guiding everyone in the company? By this point your team has probably grown a bit. It’s very important that everyone is working toward the same goals. And it’s your fault if those goals are not clear to every single person on your team. Why take any chances? Write them down on a large sheet of paper and post them where everyone can see them. One of the first questions I ask company team members is, “what are your goals and priorities?” If everyone has a different answer then I know trouble is brewing. If they have no answer then it’s even a bigger problem. If the CEO doesn’t have an answer then it is time for a new CEO.

3. Is the team matched to your goals? There is a definite skill set require to reach each of your goals. Sometimes that skill set requirement can change as a company grows. You need to constantly use training, education, and potentially team member turnover to be sure you have the right team to achieve the company’s stated goals.

4. Is the team working well together? Is the company a place of harmony most of the time or are team members always arguing? I heard about a company that brought in a marriage counselor to help get harmony back in the office.

5. Are critical deadlines being met? Is there real progress? Running a business is all about deadlines. You are either meeting the deadlines or not. I will frequently check in with startups a few months after I initially talk to them just to see if anything has been accomplished since we last spoke. Nothing (or very little) accomplished points to a fatal flaw that needs to be fixed.

6. Have your business assumptions been accurate? When you started the company you built your concept around a set of business assumption about the market, potential customers, etc… If those assumptions were wrong and the business has not changed course, that’s a fatal flaw warning sign!

7. Are revenue and expense estimates accurate? Those revenue and expense budgets you started with are important tools. How do your actual numbers compare with what you expected? If they are far off, especially in the revenue side, then you need to get to work on this fatal flaw.

8. Have critical team positions been filled? Without the right people your company can’t get anywhere. In your startup phase you identified some critical hires. Were you able to find, recruit and hire those people? If not, how will you ever reach your company’s goals? Why were these key team positions not filled? Is there another way to get the critical tasks done?

You have been running your company for a while. Maybe years. Things seem to be going well since you have identified and fixed your fatal flaws along the way. Then, your phone rings and it’s BigCo on the line and they want to buy your company. Is that good or bad? Here are the…

EXIT Phase FATAL FLAW Identification Questions:

1. Has the business been set up for a clean, simple, smooth exit from day one? When you are close to an exit deal for your company the buyer will usually send a SWAT team of accountants and lawyers to your office to look over your numbers and contracts. Don’t even think about pulling an all-nighter to get this material cleaned up and ready. It won’t work. From day one you need to keep all your agreements (including employee agreement), contracts, and accounting records in an organized way. This may seem like a distraction early on when you are trying to run your business but when the SWAT team shows up and everything is neat and organized they will be very pleased. Your exit will be smooth and easy.

2. Are you negotiating from a position of weakness? The wrong time to exit is when your company is weeks (or even months) away from running out of working capital. When a buyers sees you dire position, your purchase price will collapse. Better to start when you are a year or more from running out of capital. When the story is brighter. Or even better, raise some temporary funds so things don’t look so desperate. Other areas of potential weakness could be unresolved employee contract issues, persistent budgeted expense (cash burn) problems, intellectual property loose ends, or a strong competitor coming into your market space.

3. Have you maximized your value yet? Will locking in a dozen more clients or a few thousand more end users raise your valuation? Many times, I have seen companies going through the selling process too early. In six more months, they could more than double their selling price.

4. Does the buyer see your true value? Try to find out why the buyer really wants to buy your company. It may not be what you think. When you find out exactly why they want your company then you can negotiate from a better position.

5. Are you ready to “walk away” if the deal is not right? The first phase of most company purchase experiences is when the buyer romances you. Generally they will tell you anything to get you to the bargaining table. They will “in principal” agree to everything you ask for. Then when you look at the actual agreement a few things may have changed and they will be full of explanations. If you are not ready to walk away from the deal you may get sucked into a bad deal.

6. Are you really ready to exit the business? This may sound like an odd question but think about it. You just spend the last few years building the business, what are you going to do the day after you sell the business? The answer to this one is important. Even if you will be on some kind of contract after the deal is done you will no longer be calling the shots. The buyer will really be in charge now, no matter what they tell you. If you aren’t ready to call it quits don’t do the deal.

If you think about your company as a bridge, it’s up to you to be sure that bridge is as strong as possible. One fatal flaw can cause your bridge to collapse. Engineers use design tools, techniques, and procedures to identify dangerous structural fatal flaw before they become a problem and fix them.

You can use these questions to tease out and identify your company’s fatal flaws at every stage. In all probability, you may find several fatal flaws. It’s up to you to priorities the ones that could do the most damage to your potential startup, operating business, or division in a larger company… Then fix them.

Over the last decade or so startup accelerators have been a great source of inspiration, education, connections and capital for new companies. Y-Combinator, the granddaddy of them all started on March 11, 2005. Since then, just this one accelerator has churned out over a thousand new companies

Unicorns like Uber, DropBox, and AirBnB got their start in accelerators and now they have valuations rivaling high-profile companies that have been operating for generations.

Today, most anywhere in the world, you can throw a stone and hit a startup business accelerator. They come in a variety of flavors from government sponsored to organizations with a very specific industry focus. Even companies like Target, Coca-Cola, and Intel have started their own accelerators to focus on company ideas high on their priority lists.

It seems like everyone is getting into the startup accelerator game lately… But why haven’t there been more than a handful of success stories? With thousands of companies going through these programs several times a year, you would expect a new batch of innovative, fast growing, money-making companies to pop up every day. And all of them changing the world in interesting and compelling ways.
But that hasn’t happened…

And here’s why…

To better illustrate the problem, pull out your smartphone and push whatever magic button needed to get it to light up. Consider for a moment all the Apps and features on your phone and how your life has changed for the better because of the modern marvel you hold in your hand.

Now consider how much use you would get out of your smartphone if there were no GPS, music, video, or valuable services like EverNote, Open Table, and Fandango? What if only people with your same smartphone model could text or email you? What if all those financial services like credits cards, banks and brokers were not available on your smartphone?

Then your smartphone would be about as useful as that original cell phone you could have bought back in the 1980’s. They referred to those 1980’s era phones as bricks. They were far from the marvelous devices we use today. Basically all they did was make and take voice calls.

The big difference today is the smartphone ecosystem…

It’s the smartphone ecosystem that is really the power and convenience of these devices and why there are over two billion smartphones in use today with a projected three billion by the end of the decade.
Without the ecosystem your smartphone would be nearly useless and nowhere near the essential tool it is today. A real brick might be more useful in some situations.

The same goes for Startup Accelerators…

To get more companies to real success, startups need to be developed in a solid entrepreneurial ecosystem with all the features, benefits, and support only a complete ecosystem can provide. Without it, startups wither and disappear. Their chances of success are about as likely as excitement over a new smartphone that only makes and takes voice calls. Give me the real brick instead. The monthly service plan for a brick cost less and there is no battery recharging required.

Many, if not most, startup accelerators act and smell like the real thing at first look but when you dig around they usually do not have a real functioning entrepreneurial ecosystem. Startups jump into the accelerator then in a few months nothing happens when the program is over and the next batch of founders are waiting at the door. True success is just out of reach unless they are lucky. And luck is not the basis of a good business plan.

Before you google “entrepreneurial ecosystem” and get intimidated by huge graphics that look like something NASA would use to plan a mission to Mars slow down… All it really takes is four things to build a functioning Entrepreneurial Ecosystem.

And… flashy crowded office space in a city center or on a university campus is not on the list. If the accelerator you are considering does not have all four of these elements locked in place, then walk away. Run if you can.

If you are an investor looking for the next big thing. Look elsewhere because without these four elements the best business idea and team in the world will evaporate when the money dries up. And it will dry up because there is a very low probability that a company can get to positive cash flow without these four essential elements.

What are the four essential items for an Entrepreneurial Ecosystem?

1) Motivated Entrepreneurs – This seems pretty basic but if the people who have to make the startup company really work are not totally committed there is no chance of success. If the company founders do not have a burning desire to change the world with their product or service, then when dark nights come those entrepreneurs might just slip out into the shadows.

Sure this is about work ethic but a great way to determine startup founder motivation level is to ask questions like, “Why this company now?”. If the answer is sort of vague and weak then what will hold this company together when (not if) a crisis arises? Look for answers that involve logical idea origin stories that show the founders deep commitment to the what’s at the core of the company.

Most of the time the startup’s first idea will collapse under the pressure of market forces, technology realities, and target user demand level. Faced with this situation motivated entrepreneurs roll up their sleeves, double down their efforts and pivot their idea until it works. Failure is not an option for motivated entrepreneurs. They find a way.

2) A Solid Network – This entrepreneurial network is far reaching and includes fellow founders along with quick reliable access to all the people, equipment, services, and resources needed to reliably start and run companies. Access to other founders is at the core of this network. Talking with someone who has traveled the startup path and survived is essential.

Quick access to everything a founder needs today and in the future can quickly build a bridge over any business roadblock. These resources can be things like patent attorneys, tax accountants, contract manufacturers, public relations experts, computer equipment suppliers, real estate agents, business development specialists and more. Whatever might be needed has to be available and ready to use at the click of a button. There is little time to completely determine who might be right for the project. The resources in this network are sensitive to startups and know how to quickly get things done right at the lowest possible costs with the most impact.

3) Mentors – This is actually where the entrepreneurial ecosystem can be made or broken… The initial Mentors who help founders establish and build their companies are essential. No founding team knows everything. In fact, it’s what the founders don’t know that will derail their company. Or worse the founders will make age old mistakes and waste precious time and money going down paths that seasoned business professionals could help them avoid. Why spend months trying to get to an important potential customer when it turns out the person is your Mentor’s twenty-year golfing buddy? Why waste money on a marketing campaign that your Mentor tried a year ago and fell flat? Why go it alone when someone who has been down this path and solved these problems many times in the past can be there to advise and guide you?

There are three key components to effective mentoring and all three are required:

(1) Appropriate Mentors tailored for the startups – These are seasoned professionals perfectly matched to the exact needs of the startups. Don’t expect a Mentor with twenty-year’s of senior management experience in Corporate IT/Security Systems to be an appropriate Mentor for a founding team developing the next big meal replacement snack food for overscheduled teenagers. Not a match. Just a waste of time. Either find the right Mentor or the startup company should not be included in the accelerator program. No matter how great the team and product concept appear. Get the right Mentors.

(2) An organized rigorous Mentoring system – Mentoring is not just a few casual meeting over pizza, a Power Point assisted lecture, or a weekly phone call when convenient. And it is definitely not a frantic eleventh hour panicked phone call when things are going south fast. Mentors and Mentees must be kept to regular meetings with stated goals and objectives for each meeting followed by a clear list of tasks and responsibilities. Without the structure and accountability component it just will not work. There are many online cloud-based systems that can be used to manage Mentor/Mentee interactions. But a cheap spiral bound blank notebook can do the same job. Just so both Mentor and Mentee know what is expected, who is responsible, the deadlines, and the date/time for the next meeting.

(3) A receptive respecting Mentee – The Mentee/Mentor relationship is probably the most significant element determining the success or failure of the startup. Assuming the correct Mentor/Mentee match has been made the founder must manage the Mentee/Mentor relationship. No one knows the business better than the founder. Don’t think you have all the answers. In reality founders barely have any answers. In fact, it will be a struggle to just come up with the questions. You can always spot a company that has failed to use their Mentor. The startup company wastes time and resources dealing with the wrong business elements. Their startups appear flawed and ragged around the edges. Usually the right Mentor can help the startup cut through time-wasting unimportant items and polish the company so it is ready to get to the next level.

4) Investors/Money – The oxygen for any startup is investment capital. The money to fund the early days when risk is high, the cash to expand from the founding team once the concept is proven out, then the money needed to scale quickly… All essential. All provided by investors who know the risks and are excited about funding startup companies. No money. No ecosystem.

The best investors to fund startups are former startup company founders who have made some money either from company profits or a sale of their company. This is the sustaining part of the ecosystem. As long as profitable successful companies are being created there will be former founders waiting in line to fund the next round of bright shiny startups. Without this reflow of startup capital new companies will wither and dry up. If former founders will not invest in new companies then why should other outside investors, angels, venture capital Funds, or banks?

Somewhere in the entrepreneurial community former founders and other risk hungry individuals must be identified and cultivated. Bring them into the ecosystem early. Maybe even when the Accelerator teams are being evaluated for inclusion in the program. The earlier these investors are brought in the better. Once the startup companies have grown to a point where additional funding is needed an array of investors already acquainted with the company should be the first ones contacted. Without this essential reflow of capital from the entrepreneurial community the ecosystem will not be sustaining. Eventually it will collapse when the initial narrow sources of capital run out.

I have never seen a thriving Entrepreneurial Ecosystem or startup accelerator without these four components. The only way we will see the next Uber, DropBox or AirBnB is if more solid entrepreneurial ecosystems are established. More shared office space, and army of smart well-intentioned university professors, government programs, and large corporations hunting for the next things will not be enough with these four essential elements.

Not too many years ago I would buy a new computer every two or three years. My phone would be ready for replacement every two years right on my old phone’s two year birthday. I have a drawer filled with old phones.

But hardware and software upgrades and replacements don’t seem as urgent these days. I’m not feeling the same excitement about getting the next hot computer or smart phone. A cleaner shinier case is just not a good enough reason to spend the cash.

How about you? Have you been spending money on technology like you did years ago? Probably not.

Why do you think that might be?

It comes down to one thing… Innovation.

For computing technology that means faster, smaller, easier to use, and relatively lower priced. For some reason companies like Dell, Apple, Microsoft, and Hewlett-Packard have forgotten how to innovate.

You don’t think so?…

Then why has HP’s stock been battered over the last year? It has gone from the $16 a share neighborhood to the $10 neighborhood for a one year 35% drop in value! Today’s HP earnings report was accompanied by management comments whining about slow PC an Printer sales. I wonder why?

And what about Apple? This formerly innovative company’s stock price has gone from around $111 to $96 over the last year? That’s over a 13% drop! This should be a growth stock, right? Apple’s stock price held up better during the 2008 stock market melt-down.

The fact is that people are holding onto their old iPhones, iPads, and Macs longer since there are few compelling reasons to pay for something Apple calls “New”. The last iPhone upgrade was a great example of this lack of innovation. What was really new in that last upgrade?

Tech stock weakness has set in because these big tech companies have forgotten how to innovate. Maybe an army of accountants have taken over and pushed out the engineers, designers, and dreamers.

In the past, a new PC or laptop would at least double the speed of your older computer. Every two years there would be countless new cell phone features and it would be blazingly faster. New versions of Microsoft Office would be packed with useful new features and maybe even a little faster and easier to use.

We all had to upgrade! And we felt we received our money’s worth.

I have heard some people say that Apple has stopped innovating because Steve Jobs is gone. Then what’s the excuse for the lack of innovation at Dell Computer? Michael Dell is running the company and since he took the company private he doesn’t have Wall Street task masters to answer to. Mr. Dell can do what he wants. But he can’t seem to make a faster, cheaper, cooler computer for me?

This lack of real innovation is putting the entire tech sector into a terrible fog. It has been difficult for these tech companies to increase revenues so the only way to improve their bottom line is with cost cutting. Which means they are spending more time counting beans and less time on real innovation.

Has HP forgotten their own rules?

These companies may have painted their selves into a dangerous corner…. A corner that may give and unfair advantage to passionate risk-takers and fearless dreamers.

Could that be you?

What does this mean for the real innovators? Those scrappy engineers and designers who lust for new, fast, sleek, simple, and the most elegant may see their day in the sun.

If old line tech companies don’t start innovating and providing exciting products eventually someone else will fill the gap.

Right now people are sitting on a huge installed base of old Windows XP and Windows 7 computers. These users seem to be happy right now even though Microsoft has virtually abandoned Windows XP, their most solid operating system ever. They are temporarily happy because nothing on the market has shown them a good reason to upgrade.

I’ve tried Windows 10 and it feels solid but complicated. Windows 7 is doing a fine job for me right now. But as soon as Dell puts out a computer twice as fast as the one I am using I will upgrade. I’m itching to spend the money.

We’ve seen this innovation drought before and it doesn’t end well for the companies who do not innovate. Remember Research In Motion? And back in the 1990s there were several PC manufacturers that disappeared when they stopped innovating. Without significant technology improvements they were forced to compete by lowering prices. Those companies are all gone now.

This is where it began… The the innovators arrived!

What’s the message here for startups? When the big guys stop innovating… This is what real opportunity looks like.

Maybe it’s time to start a company than CAN innovate. One that is not afraid of taking risks, making mistakes, and stumbling onto what could be the next big thing…

I like to think that right now in some basement, garage, or windowless backroom a dedicated team of innovators is exploring something to delight us in all new ways.

If that’s you then you are probably in the right place at the right time.

I’m ready to buy your new product and millions of other people will be right behind me.

Two online retail sales forces are colliding this week… Jet.com a potential Amazon rival went live and Amazon is announcing earnings.

Jet.com has a great story ( link here)… The former online retail guru who sold his suite of companies including Diapers.com and Soap.com to Amazon for $545 Million is now back in the online retailing game and gunning for Amazon.com’s customers.

His non-compete agreement must have just expired but is this really the best use of his time and his investors’ money? Why try to go up against Amazon when this online retail leader can’t even seem to make money in this online retail business?

That’s the other thing that hit this week. Amazons earnings report!

Amazingly Amazon reported a profit of $92 Million on revenue of $23.19 Billion for the quarter ended June 30. This is the first profit in a while and compares to a $126 Million loss on $19.34 Billion in revenue a year earlier. When you do the math Amazon makes less than 0.4 cents on every dollar it takes in. That’s less than half a cent. Not so good. Lots of activity not a lot of profit.

So if Amazon is having a difficult time creating profits out of our intense need for stuff delivered right to our door within two days, then why does Jet.com think they can make any money at this?

Their marketing pitch is full of stuff to hopefully make us believe they can serve up goods a prices lower than anybody else on the internet. “Club price savings on pretty much anything you buy.” A quick search of the stuff I buy on Amazon shows Jet’s prices are exactly the same but I pay a shipping fee on Jet. Since I am a Prime Member I pay no shipping fee when I order from Amazon.

The same price for the goods but I pay extra for shipping…. What was Jet thinking?

I’m sure Jet offers some items at a lower price than Amazon but unfortunately nothing I buy. If you test Jet with your items and come up with a significant savings let me know.

Usually before smart people start a new business or invest in one they identify a series of consumer perceived “pain points”. So let’s list what we hate about Amazon to identify potential “pain points” that could give a competitor an edge:

Amazon reliably ships me what I order on time or earlier.

Amazon has a simple return system so with a few clicks I can return stuff when I need to.

Amazon has my order information so ordering is just a few simple clicks.

Amazon pays me a $1 per order credit if I elect to get my stuff in less than two days.

If I ever need help I can always get someone from Amazon on the phone.

When I am in a bricks and mortar store and I see something I want I can use my phone to scan the barcode and find out what Amazon charges then order the product.

Amazon has been doing this for over 20 years.

Sorry… I couldn’t identify any “pain points”. So where is the opportunity for Jet.com?

I just don’t see any reason Jet.com to exist. And even if they are successful at poaching Amazon customers with their lower price pitch those buyers will be the more price sensitive customers that were actually costing Amazon money. Ultimately Jet.com will be helping Amazon make more profits. They should expect a nice Thank You note from Jeff Bezos.

To sum things up… Jet.com has entered a low margin (probably a losing) business category with a single strong entrenched competitor who appears to be doing everything right to keep customers happy. It’s not like Amazon is leaving us out in the rain to compete with a ninety-year-old lady for a lone yellow taxi.

So as a comparison let’s consider Uber…

This leading ride sharing business who appeared to come out of nowhere and rocket to a reported $50 Billion valuation entered a fragmented market with no clear leader where it took many steps to hail an inconsistent ride. And before Uber when your ride showed up you probably paid more to get to your destination in a smelly vehicle with a gruff distracted driver. Then there is Uber’s App where you can see those little cars circling. With a few clicks you see your ride on its way. At the end of the ride no money changes hands. It’s all automatic. No scrambling for cash, waiting for a receipt, or agonizing over how much to tip.

When you are looking for a company concept for a startup or to invest in think about Jet.com and Uber. Identify the pain points and be sure people care enough about those pain points to use your product/service and pay enough for it so you can make a reasonable profit.

There are basically three types of ideas when it comes to Startups. Small Ideas, Big Ideas, and DOA (Dead On Arrival) Ideas. Unfortunately most of the ideas I see fall into the first and last categories. Far too few even come close to The Next Big Idea.

A Small Idea is not really a bad thing. The problem is that there is a low probability that a Small Idea will develop into something that can support the large organization required for execution and an outside investment level to make the company grow at an acceptable pace. There is nothing wrong with a small idea. I have seen many small ideas that can support a tight staff of five to ten people where everyone goes home at the end of the month with a nice paycheck and benefits package. Nothing wrong with that. The problem occurs when a startup team mistakes a Small Idea for a Big Idea. They try to build the Small Idea company along with all its related expenses with the illusion that it is a Big Idea company. Pretty quickly expenses balloon with staff, advertising, programming, office space, travel, etc… while revenues can’t keep pace. Then the bills mount up and things collapse. If you are working on a Small Idea company don’t grow and run it like a Big Idea company until you are absolutely sure the company can support your intended expense ramp up.

And… I will say it one more time… There is nothing wrong with a Small Idea company just be sure to keep your expenses in line with actual revenues.

DOA (Dead On Arrival) Idea companies are a whole different animal. Sometimes these have the hype, excitement, logos, t-shirts, PowerPoint Presentations, Sharp Teams, plus the overall energy and “feel” of the Next big Idea… But… Once you get past the fog and manufactured excitement of all the company accouterments, the product/service just does not work for a significant number of users, has already been done, or does not have the possibility of attracting more than a few curious early adopter types who probably would not pay anything for the product/service.

A Big Idea company needs to be something that could reasonably create a profitable company with at least $100 million in annual sales. More is good but the $100 million mark is the ideal.

There are many great Big Idea company examples from the past so lets think in general about a few of the past “Big Ideas” and try to categorize them. Things like online Travel booking (Travelocity, Orbitz), online auctions (eBay), service sharing (Uber, AirBnB) and online Classified ads (CraigsList). When you consider these four categories you will have to agree that each probably fit the checklist shown below when they were created. But the key will be to identify new categories going forward. More on those potential new categories in a future article.

When I review startup companies I use a six-point Next Big Idea checklist like the one below before I even begin digging in for a deeper look at the team, marketing plan, P/L projections, etc…

The Six-Point Next Big Idea Checklist

1) The Product/Service is Unique, Special, and Relevant – Are there any products/services that do this now? If so, why your product/service now? What is the target user “pain point” that the product/service will address? Who are the current competitors? How do the target users perform the task now? Does the product/service look like it would have been a great product/service to introduce last year or next year?

The Product or Service may already exist but for some reason your implementation will solve a big problem or in some significant way make things easier, faster, or more efficient. Or just more fun!

2) The Future Looks Good For The Product/Service – Is there is some known significant “game changing” event or trend on the horizon that will make your product/service especially relevant almost overnight?

An example of this would be that your product/service takes advantage of (exploits) some new feature in the next iPad, iPhone, Mac, or version of Windows. Or maybe some new law will require people do something and your product/service makes that much easier for people.

IBM PC In 1984

3) The Market Size Is Significant And Provable – The potential market is substantial and the target users will pay for the product/service.

The bottom line is that you will need to make money. It’s a fact of business and it will be better for you if your market is significant. Estimate the number of potential users and how much they each would pay. And show your proof on why you think those numbers are correct. The best ideas in the world (even from huge companies with big marketing budgets) will not endure if the market is too small. Examples are Microsoft webtv PLUS, Apple Newton, Sony BetaMAx, and smokeless cigarettes. If you are interested CLICK HERE for a list of the entire top 25 Biggest Product Flops of All Time.

4) The User Experience Delights People – Can the benefits/features be clearly defined and experienced by the target user? Is it confusing or clear? Is there an “aha, I need this!” moment for the target user? Is there a moment of delight and surprise for the target user? How forgettable is the product/service? Is it something people will want to talk about and share?

The Next Big Idea will be something that can be quickly communicated either in words or by demonstration. And when people see it they will immediately

The First Macintosh Computer 1984

understand it. They will line up to buy the product/service.

I remember the first time I saw the Apple Macintosh. (Yes, to entice my company to make software for the Mac, Apple sent me a Mac Computer many months before they were released in stores.) As soon as that first screen popped up I knew the new apple computer would be a success. Especially because it was sitting on my desk next to an IBM PC with a DOS operating system that had green glowing characters on a black screen. The Macintosh looked easier and was a delight to use. It still is.

5) A Prototype Can Be Tested Right Now – How fast can a prototype be created for testing and how much will a prototype cost?

The faster you can get a minimally functioning prototype in front of users the better. You need to see how people really respond to the product/service in a real life setting.

6) There Is A Significant Moat – What is the moat? What will keep others out of your product/service space long enough to build a user base? Can you patent some technology? Is there some type of exclusive arrangement? Is the market too expensive for others to enter? Is there some unique distribution channel? Is there some unique aspect of the product/service that cannot be easily duplicated? Is there some unique customer relationship required to make a sale?… The bigger the moat the better.
There will always be great ideas that will not make it through my Big Idea checklist but still go on to succeed. Companies like Chipotle and Shakshack come to mind. Why would we ever need another place that makes burritos when we have Taco Bell? Why another burger place to compete with 5 Guys and all the rest? But these two companies are on a roll.

If your dream is to start a Big Idea Company the key is to run your potential company ideas through the six-points above or…. just work harder on your burrito and burger recipes.

Forty years ago I remember hearing about how one of my neighbors had just become a millionaire. That was back in the 1970’s when being a millionaire really meant something. How did he make his million?

This guy didn’t win the lottery and he wasn’t some kind of engineering wizard who just came up with some world changing technology. He sold shoes for a company called Sears. He wasn’t the CEO or anywhere near the top of the organization. He spent his day on the selling floor helping people find the right pair of shoes at one of the one thousand Sears stores. He was just a regular worker bee. The guy was at Sears for over twenty-five years and was regularly investing in the employee stock purchase program. One day he looked at his stock balance and it was over a million dollars.

To put this into perspective that would be almost $6 Million in today’s dollars. These days with all the money being generated by hot technology startups a $6 million dollar pay day for a worker bee may be an every week occurrence. The magic formula back in the 1970’s was to work for a company like Sears. This concept seems quaint now.

If you weren’t around back in the 1970’s buy your dad a beer one night and ask him to tell you about who the captains of business were back then. Sears was the retail leader with J.C. Penney close behind. Radio Shack was the hot technology retailer of the day with more store fronts than Sears and they had an electronics hungry free-spending army of customers.

But what’s going on with Sears, J.C. Penney, and Radio Shack today?

In 2014 Sears is on life support as current management has tried a variety of strategies and financial engineering to keep the company afloat. Sears is not alone. J.C. Penny seems to be on a downward slide also. And Radio Shack may not make it past this Holiday season without a significant change to their entire business model including a drastic reduction of personnel and store fronts.

Forty years ago all these companies were leaders in their segments. Minting millionaires and appearing to be unstoppable. They were the Googles, UBers and Amazons of their day. Like today’s leading companies they had huge product hungry customer bases,they were flush with cash, they had the best management teams, and the world was theirs… Until it wasn’t!

So what can today’s startups learn from these former big business darlings?

LESSON 1: Never stop innovating.

So you worked real hard getting your first product out to the market. You are probably feeling pretty good. Like you climbed Mount Everest. Well take the afternoon off then get right back to work on your next product. The innovation never stops. And if you don’t have a “head of innovation” then you are not innovating. Your “head of innovation” should have only one job… Making the next generation product for you company before someone else makes it.

LESSON 2: Always be ready to obsolete your own business.

What usually happens when a company goes on the decline is that another competitor has entered the market with a disruptive product, service or distribution strategy. And that competitor is on its way to obsoleting your company. You should always look for ways to obsolete your company yourself before someone else does. If you do it before the competition then you will still be in business instead of just talking about the good old days. Think about how Netflix obsoleted Blockbuster Video. and how Apple’s iPod obsoleted the other pile of MP3 players on the market. The auto industry dealer network may be living through the early stages of being obsoleted right now. I’m sorry to say that all those plaid jacketed car salesmen will probably not be around in a few years. Maybe they can go keep the travel agents and bank tellers company.

LESSON 3: Customers really do come first.

A good early warning is when your customer numbers start to drop. When your customers stop coming back you need to figure out where they are going and how to get them back. Keep an eye on your customer numbers what ever that metric is for your company. Fixing your customer numbers is no black science. Just talk to your customers and take the time to really listen to what they are saying. You don’t need to go very far to see a great example of this rule being broken. According to QuantCast over the last year the number of active users for Zynga’s games has dropped from around 1.6 Million to around 860,000. A 46% drop! What do you think Zynga should do? Maybe listening to their customers would be a good start.

LESSON 4: Last decade’s (or last year’s) management team is probably not the right team for this decade (or year).

Markets change. Products change. Technology changes. And… Companies must change and grow to survive. An unfortunate fact of life is that the management team that got you to where you are may not be the one to get you to where you want to go. The Sears management team that guided the company through its most successful period would probably be lost in today’s multi-channel highly-competitive retail environment. The same goes for a startup company. That awesome team that brought the first product to market is probably not the right team to take the company from ten employees to five hundred warm bodies. Be a part of that management change. Don’t resists it or your company may disappear overnight.

Zynga Active User Numbers Drop 46%

LESSON 5: Always be hungry. Never stop thinking like a startup.

What would Sears look like today if they had not lost the “startup” spirit? What if they had not forgot that hunger for success that their founders most certainly had? If you ever find yourself sitting in your office looking out at all you command and thinking “I have arrived”… You should call down for some empty boxes because that is the beginning of the end. If you look closely at most any of the fallen company giants, at the core you will find a management team that lost its hunger. Work became a 9 to 5 thing you showed up for instead of the reason to live. Those fallen giants forgot what made them great. What set them apart and what got them to the top of the mountain. That first mountain is just a place to look around and find the next mountain to climb.